By Mark Huffman
ConsumerAffairs.com
May 15, 2009
With the economy showing signs of life but still in a recession,
consumers dont really have to worry about inflation. The Labor
Department reports the Consumer Price Index was unchanged in April
from March.
When compared to the CPI in April 2008, prices were down 0.7 percent, the largest annual decline since June 1955.
Looking at the numbers, Joel Naroff, chief economist for Naroff Economic Advisors, in Holland, Pa., said the price contraction might have been more pronounced if so many states had not raised taxes on cigarettes.
By itself, tobacco added nearly 0.1 percentage point to the CPI, Naroff said. Meanwhile, costs for clothing, food, energy, transportation, housing and recreation were all down.
The CPI is a backward-looking indicator and reveals little about what is happening in the economy this month. And Naroff notes that some dramatic changes are being felt this month, with food and gasoline prices showing dramatic gains so far in May.
Gasoline prices have surged 11.7 percent in the last 30 days, with the national average of self-serve regular at $2.29 a gallon Friday. Still, thats a far cry from the $3.77 a gallon motorists were paying a year ago.
Gasoline prices have risen on a tightening of gasoline supplies as refineries have operated at only 80 percent of capacity for much of 2009. However, the U.S. Energy Information Administration predicts gas prices will level off for much of the summer.
Naroff believes prices are in a sweet spot that wont show much fluctuation going forward.
There is no inflation and indeed, the direction of prices is neither down nor up, he said. Some consumer costs are still falling, but the declines are not as widespread as they appear on the surface. Thus, we shouldnt fear deflation either despite the year-over-year decline.
